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Councils pool resources to make borrowing cheaper for one another

The UK’s first ‘municipal bonds agency’ has moved a step closer, with 48 councils signed up to become investors.

The Local Government Association (LGA) says the new agency will give councils a ‘viable lending alternative’ to the Treasury-controlled Public Works Loans Board (PWLB), from which authorities currently source 75% of borrowing, potentially saving more than £1bn in borrowing costs for investing in infrastructure.

After a successful start to the second round of equity raising by the new Local Capital Finance Company (LCFC), the LGA Executive says there is enough council support to launch the agency.

Signed-up councils include cities and unitaries, counties, districts and London boroughs, with cross-party political control.

The new agency will be independent, with its own governance structure, but accountable to its council shareholders and the LGA.

According to LGA figures, if half of the outstanding debt with the PWLB was transferred to the new agency, the saving to the local government purse could be between £1.2bn and £1.45bn over 30 years.

Prospective shareholders will now have until the end of February 2015 to finalise their equity investment, at which point it is hoped that preparations will be under way for the issuing of the agency's first bond.

Michael Lockwood, executive director of the LGA, and director of the LCFC, said: "The decision to move into the launch phase is a significant and important step. It reflects the overwhelming appetite among local authorities for us to make this happen.

"There is no doubt about the support for a local government owned bonds agency that saves taxpayers money by making borrowing cheaper. We're now entering the crucial final leg where we will be looking for councils to finalise their equity investment.

"This company will be owned by local government and will have the single purpose of reducing councils' long-term capital financing costs. The introduction of a council-owned competitor into the lending market can be a great showcase for local government's strength and ambition while demonstrating the very real benefits of local independence."

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